Q My parents named me as their trustee and both have now passed away. Most of the work I needed to do to under their trust has been completed. Now I need to be trustee for a trust they set up for my sister. My sister is not good with finances so they wanted to have her inheritance held in trust for her and I am to give her money, as she needs it, for her lifetime. When she dies, I give what is remaining to some charities my parents named. Are there some key points I should consider as I undertake this part of my responsibilities?

A The administration of long-term trusts can present a variety of challenges so I recommend you establish good working relationships with an estate attorney, a tax advisor and a money manager. The keys to insulating yourself from grief and potential litigation is to establish good organization of your duties, document all your actions as trustee and seek court approval of your actions, if needed.

You also need to recognize that in your sister’s trust, you have two sets of beneficiaries: your sister and the charities that will receive what is left in the trust after your sister dies. You want to maintain a friendly and transparent relationship with your sister as to her trust.

When you offer transparency to a beneficiary about the trust, its assets and your actions, you can alleviate the fear of the unknown and any lack of confidence on your sister’s part that can sometimes arise in these circumstances. When a beneficiary does not understand the trust or the trustee’s actions, litigation can result.

In partnership with your attorney, tax professional and money manager, you should continuously monitor the administration.

Constant vigilance can help you identify potential problems before they come to fruition. The trust is its own tax paying entity so annual tax returns will be filed.

These returns will produce a K-1 which is given to the beneficiary and that shows how much income tax they will need to pay for monies received from the trust. Remind your sister, every January, not to file her personal income tax returns until she receives the K-1.

When investing the trust money, keep in mind that the trust funds need to last for your sister’s lifetime and provide something to the charities upon her death. This means that you have to structure the investments so they not only produce income, but have long-term growth, as well.

The money manager you work with should build a portfolio to meet this criterion. Once you have a good idea about how much you will need to distribute to the beneficiary (your sister) each year, you may need to tweak the investment portfolio to meet the needs.

Make sure you meet with the money manager regularly to confirm you are on track to provide for your sister and have funds remaining for the charities.

Also, in October or November of each year, ask your money manager to harvest any losses in the portfolio to offset any realized gains.

This will decrease the income taxability for capital gains and is just good management.

Depending on what the trust document says, you will need to provide an accounting to your sister either quarterly or on an annual basis. In addition, the annual accounting must be provided to the charities.

This accounting will show the assets on hand at the beginning of the year, all income received such as dividends and interest, any sales of assets, and a summary of distributions made during the period.

As you can see, the job can be complex and demanding so remember that you are entitled to trustee fees for your work.

Like all your actions, keep good records of your work and the time spent.

Remember, too, that trustee fees are taxable as income so you will need to report any fees taken on your personal income tax return.

Liza Horvath has over 30 years of experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have questions call (831) 646-5262 or email liza@montereytrust.com